As renewed tensions in the Middle East prompted fears of possible disruptions to oil supplies, crude rose by more than $1 to near $40 a barrel. So Cairn Energy closed 134p higher at £20.25, while BP was 18.25p better at 514.25p and Royal Dutch Shell B shares rose 48p to £17.01. News of the start of production at the Grouse oilfield in the North Sea lifted the shares of its joint owners - Dana Petroleum rose 77p to £10.22 and Venture Productions 6.5p to 431.25p.

Base and precious metals also rebounded, pushing Vedanta Resources 42p higher to 652p and Anglo American up 86p to £15.06.

Overall the FTSE 100 closed 102.76 points higher at 4319.35, although volumes were thin as many dealers opted for an extended break. A near 90 point fall on the Dow Jones Industrial Average, had little impact. Despite the day's rally, the leading index is on course for its worst annual performance - down around 33% - since its inception in 1984.

Among the banks, Royal Bank of Scotland was the best-performing share in the leading index, on suggestions it might keep its Direct Line and Churchill insurance businesses and had also been sounding out possible replacements for Sir Tom McKillop, who steps down as chairman in April. RBS rose 6p to 48.7p despite vague talk of a possible profit warning in the new year.

Standard Chartered added 54p to 809p after a report it was one of a number of banks asking the Chinese government to delay a recently imposed tax on interest paid on overseas borrowings. HSBC, another bank involved, ended 10p higher at 635p.

Financial group Cattles closed 2.5p ahead at 14.5p. The shares fell sharply last week on fears its application for a banking licence would not succeed.

But housebuilder Bovis Homes slipped 0.25p to 394.5p as it announced it had signed a new £220m banking facility, but at a higher cost.

Retailers rose on hopes that shoppers were out in force on the high street, even if they were not paying full prices. Next added 15p to £10.99, Debenhams was up 1.5p at 25.5p and Argos owner Home Retail Group was 4.25p higher at 209.25p. But Marks & Spencer, which analysts at Seymour Pierce believe could issue a profit warning early in 2009, slipped 3.25p to 210p.

Lower down the market NXT, a specialist in flat panel loudspeakers, climbed 2.87p to 10p on news of a $1.8m (£1.2m) licensing deal with Japan's Nissha Printing Company.